One of my favorite Calvin and Hobbes cartoons is when the dad reminds Calvin it costs $250,000 to raise a child. He then says something to Calvin along the lines of – “Is that a gift or a loan?”Like most parents, I sometimes feel as though I am a human ATM. Fortunately, both boys work during the summer so they have spending money, however, there are still expenses I don’t expect them to pay for, like gas to get to and from school.
I was thinking about this concept recently as I have been seeing more and more articles from “experts” on growing financial advisory practices. Looking at this industry from a different perspective than most advisors, I was seeing a theme. It seemed as though the advice was basically to make clients 100% responsible for all new revenue for a firm. Or to put it less politely, turning clients into human ATMs for firms. Below are some of the “expert” recommended ways to get clients to bring in their friends and families.
- At the end of each meeting, ask the client to write down the names of three friends the advisor should be talking to. To make it stronger, one firm encourages the advisors to have the client call their three friends right there so they can talk to the advisor immediately and schedule a meeting right then. No pressure at all.
- Have a birthday lunch for your client. Seems nice enough, right? Well, the advisors encourage their client to bring some friends along. I think it is pretty clear who is getting the present at these types of events.
- Host a fun event for clients and raffle off a bunch of gifts. Now, to get a raffle ticket you have to write down the contact information for a referral. Obviously, the more referrals, the more tickets, and the better odds you win the $25 gift card to Bob Evans. Not that there is anything wrong with Bob Evans.
- The final one I wanted to share is what some advisors refer to as “Firm Ambassadors.”The operation here is to “train” select clients to go out and find new clients for the firm. The training usually takes place at regularly scheduled dinners hosted by the advisory firm. Then the “ambassadors” on released on their unsuspecting family and friends.
I don’t know about this whole concept of encouraging, and in some cases, forcing clients to provide referrals. Hell, I heard a rumor years ago of an advisor who would require clients give him a certain number of referrals annually otherwise he would terminate the relationship.You know how I have never, nor will I ever, ask a client for a referral. Just not my style.
Stepping back and looking at these aggressive referral methods, I am reminded of a couple of other types of organizations that have similar growth models. The other two I am thinking of are Cults and Pyramid schemes.At least Cults and Pyramid schemes don’t end conversations with - “I get paid in two ways. The fees you pay me and referrals.” For them you get new clothes, a sweet haircut and a great supply of health care products.